It's time to hit the brakes! Wall Street's major firms warn: the new round of retail investor frenzy may be nearing its end

The meme craze has swept the market again, with retail investors igniting a new round of frenzy, but Barclays believes it's time to hit the brakes.

Social media hype has driven the stock price of retailer Kohl's up as much as 105% on Tuesday, soaring 53% over the past five trading days, while real estate trading platform Opendoor has skyrocketed over 440% since the beginning of this month. This frenzy is reminiscent of the retail speculation surrounding GameStop during the COVID-19 pandemic.

Stefano Pascale, head of equity derivatives strategy at Barclays, warned that certain corners of the market are showing clear signs of a bubble, “Many people may recognize that there is a bubble and know that these bubbles will eventually burst in some form.” However, predicting the timing of these stocks' decline is difficult, as “bubbles can last a long time, especially when market liquidity is abundant.”

Regarding the meme frenzy, analysts seem to agree: it's not about whether a pullback will happen, but “when” it will occur. In the meantime, cautious investors may need to consider using options strategies to hedge risks or simply stay away from these highly speculative sectors. Meanwhile, the hedge fund strategy of "differentiated trading" is becoming a weapon for bears, betting through options combinations that these bubbles will eventually burst.

Meme Craze Reappears with "Madness" Characteristics

Pascale and his colleague Anshul Gupta at Barclays have been warning about the risks of excessive market excitement since early July. They pointed out that the surge in companies going public through mergers with blank-check companies, along with "Woodstock for Capitalism" Cathie Wood's ARK Innovation ETF soaring 73% over the past three months, are all "signs we typically associate with overheated markets," the two wrote in a report on July 1.

Last week, Barclays' stock frenzy indicator surged to its highest level since the end of December last year. This indicator uses options data to quantify investor optimism. Steve Sosnick, chief strategist at Interactive Brokers, stated, “To me, this activity is starting to feel very much like 2021,” referring to the peak of the GameStop frenzy.

The driving force of social media cannot be underestimated. Kohl's set a staggering increase on Tuesday, while Opendoor's performance has been even more astonishing, rising over 440% since the beginning of this month, showing typical meme characteristics—irrational surges in a short period.

In the face of this market frenzy, Barclays believes a popular hedge fund strategy called "differentiated trading" should be adopted. This strategy involves a combination of individual stock options and broad index contracts like the S&P 500